Contracts, reference points and the theory of the firm

This 79 minute audio is of Professor Oliver Hart's inaugural Coase Lecture delivered on the 22 February 2007 at the London School of Economics. In this lecture, Oliver Hart discusses how his recent work with John Moore on contracts as reference points can be used to shed light on the theory of the firm.

A copy of the published paper based on the lecture is available here. The abstract reads,

I argue that it has been hard to make progress on Coase's theory of the firm agenda because of the difficulty of formalizing haggling costs. I propose an approach that tries to move things forward using the idea of aggrievement costs, and apply it to the question of whether a transaction should be placed inside a firm (in-house production) or in the market place (outsourcing).

Oliver Hart is the Andrew E Furer Professor of Economics at Harvard University, where he has been teaching since 1993. He a major authority on contract theory, the theory of the firm, and corporate finance.

Arnold Kling and Nick Schulz at ReasonTV

In this 10 minute video Reason.tv's Nick Gillespie talks with economist Arnold Kling and journalist Nick Schulz about their new book, From Poverty to Prosperity, which charts the fantastic increase in overall wealth despite recent economic troubles.

Taking a longer view that stretches back decades and even centuries, Kling and Schulz argue that we've entered the era of Economics 2.0, in which the key issue is innovation, transformation, and growth, not the divvying up of existing goods and services.

Where I'll be on Friday and Saturday .......

I'll be at the 4th Australian Workshop on Experimental Economics which is taking place at Canterbury on Friday and Saturday. Alan Wood, in The Press here in Christchurch, had this to say about the Workshop this morning,

The control of asset bubbles such as the ones that impacted the dotcom world, property markets and commodities is just one topic for an "experimental economics" workshop in Christchurch.

The University of Canterbury will on Friday and Saturday host the conference to be attended by "leading economists" from around the world.

The workshop is organised by Dr Maros Servatka and Dr Steven Tucker, experimental economists from the university's department of economics and finance.

In conjunction with the workshop the university is establishing a "New Zealand Experimental Economics Laboratory (NZEEL)", a purpose- built experimental economics laboratory with private rooms and observation areas.

Tucker said the fact the fourth Australasian workshop on experimental economics had moved outside its previous hosting place - the University of Melbourne - for the first time was a coup for Canterbury.

Topics to be presented during the two-day workshop include the world's "financial meltdown" and creation of asset bubbles, market institutions and the effect they might have on the behaviour of firms and consumers, and altruistic behaviour by individuals.

Experimental economics tried to use a methodology to test theories within "controlled laboratory experiments" to create economic parameters that were not observable in the real world, Tucker said.

"We actually bring in human subjects into this laboratory to make decisions within this environment which we create."

One of his co-authors Volodymyr Lugovskyy, was presenting from their paper "An experimental study of bubble formation in asset markets using the tatonnement pricing mechanism", Tucker said. The paper was also co-written by Daniela Puzzello.

They were reporting the results of an experiment designed to study the role of institutional trading systems or structures in the formation of bubbles and crashes in laboratory asset markets.

In the study they had employed the tatonnement trading institution - not previously explored in laboratory asset markets - with the results showing bubbles were eliminated. This was a much different trading system than the standard "double auction" used, for example, at the New York Stock Exchange.

The tatonnement system was an auction in which participants were together bidding and selling assets at many different price intervals. Prices are raised or lowered depending on demand.

Tucker said the area of experimental economics - using controlled experiments within a laboratory setting to study economic behaviour - was relatively young. A prime mover behind the studies had been Vernon Smith, who in 2002 was awarded (jointly with Daniel Kahneman) a Nobel memorial prize in economic sciences.

The establishment of a New Zealand Experimental Economics Laboratory as the main experimental economic research centre in New Zealand.

The thinktank would be of potential help to Kiwi companies in areas such as bargaining, and beneficial outcomes in business.

"We have just been granted the right for our research centre in experimental economics. We approached the vice-chancellor Rod Carr . . . and he awarded [money to] our proposal for the development of the lab," Tucker said.

Keynote speakers for the Workshop are: Tim Cason - Purdue University, Martin Dufwenburg - University of Arizona, Charles Noussair - Tilburg University and James C. Cox - Georgia State University.

Speakers will include: Morris Altman - Victoria University Wellington, Ananish Chaudhuri - Auckland University, Stephen Cheung - University of Sydney, Lana Friesen - University of Queensland, Ben Greiner - University of New South Wales, Anna Gunnthorsdottir - University of Sydney, Volodymyr Lugovskyy - Georgia Institute of Technology, Vai-Lam Mui - Monash University, Nikos Nikiforakis - University of Melbourne, Joerg Oechssler - University of Heidelberg, Maro Servtka - University of Canterbury, Robert Slonim - University of Sydney, Steven Tucker - University of Canterbury, Richard Watt - University of Canterbury and Tom Wilkening - University of Melbourne.

The program for the event is available here.

Personally I'm looking forward to hearing Maros's paper on Sense of Unity and the Hold-up Problem: A Behavioral Study of Firm Boundaries. The issue of how hold-up determines a firm's boundaries, via a reduction in hold-up problems because of vertical integration, is still not fully understood, so hopefully Maros's paper will be throw some light an important issue in the theory of the firm.

Hayek and the common law

At Cato Unbound the topic of the moment is Hayek and the Common Law.

Among non-economists, Nobel laureate Friedrich A. Hayek is perhaps best known for two things: his seminal book The Road to Serfdom, and his defense of the theory of spontaneous order. Briefly stated, the theory of spontaneous order holds that many of the most useful social institutions are the product of human action, but not of human design.

Examples abound. No one individual or committee sets market prices; those who have tried have always failed. No designer created the English language, and artificial languages have never met with any great success. Scientific discovery through repeated experiment causes truth to emerge, but scientific truth is not forged through rationalistic design. Instead, it is a product of many uncoordinated searches, serendipity, and replication across the scientific community.

Arguably the greatest example of spontaneous order outside the market, however, is the development of the common law, a legal tradition that proceeds incrementally, case by case, privileging precedent and continuity. No one individual or committee created the common law. Indeed, it is said that the common law is discovered by judges rather than created by legislatures. The common law is robust for the same profound reason that markets and language are robust, and each therefore deserves great deference.

Yet, argues lead essayist Timothy Sandefur, there are problems with the concept of spontaneous order, especially as it regards the law. As virtually everyone acknowledges, the mere fact that a law has been in force for a very long time doesn’t necessarily prove its rightness. Hayek, too, allowed that the common law may change over time, and he attempted to integrate this notion into the theory of spontaneous order. Yet there are clearly some changes that are not properly a part of spontaneous order. How do we separate the good changes from the bad? We must seemingly reach outside the spontaneous order for our normative supports.

Commenting on Sandefur’s essay will be legal and business scholar John Hasnas of Georgetown University, economist Daniel Klein of George Mason University, and economic historian and Hayek biographer Bruce Caldwell of Duke University.

Sandefur's essay is here, John Hasnas's comment is here, Daniel Klein's comment is here and Bruce Caldwell's comment is here.

What have we learnt about the theory of the firm?

My question of the day. In a recent paper I used a 1989 quote from Oliver Hart about the state of our understanding of the theory of the firm,

“An outsider to the field of economics would probably take it for granted that economists have a highly developed theory of the firm. After all, firms are the engines of growth of modern capitalistic economies, and so economists must surely have fairly sophisticated views of how they behave. In fact, little could be further from the truth. Most formal models of the firm are extremely rudimentary, capable only of portraying hypothetical firms that bear little relation to the complex organizations we see in the world. Furthermore, theories that attempt to incorporate real world features of corporations, partnerships and the like often lack precision and rigor, and have therefore failed, by and large, to be accepted by the theoretical mainstream.” (Hart 1989: 1757).

In recent correspondence (from November 2008), Professor Hart said of the 1989 quote

“The language of 1989 is strong, and I’d probably tone it down a bit now. There’s been a lot of work in the last twenty years, and some progress. However, we are still not at the point where we have good models of the internal organization of large firms.”

So I’m left wondering, What have we really learnt over the last 20 years? Have we really made any process in understanding the organizations that we refer to as firms? I have trouble in trying to think of what we have learnt.

Take, as an example, the point that there doesn’t even seem to be agreement on a definition of a firm. Alchian and Demsetz (1972) started a literature which argues that there is no real difference between markets and firms and so it is not generally useful to talk about firms as distinctive entities. The Grossman/Hart/Moore approach on the other hand thinks of firms as a collection of non-human assets under common ownership. Others see the firm in terms of the employment relationship. This seems a very basic point for there to be no agreed upon answer.

So, are we really any further advanced than we were 20 years ago?

• Alchian, Armen, and Harold Demsetz (1972). ‘Production, Information Costs, and Economic Organization’, American Economic Review, 62(5) December: 777-95.
• Hart, Oliver D. (1989). ‘An Economist’s Perspective on the Theory of the Firm’, Columbia Law Review, 89(7) November: 1757-74.

Incentives matter: tax file

The incentive effects of taxes are well appreciated by most people, if not by governments. The following comes from a piece, Hundreds of bosses flee UK over 50% tax by Robert Watts and Maurice Chittenden, in The Sunday Times, December 13, 2009:

Britain’s financiers and entrepreneurs are quitting the UK at a rate of 10 a week to avoid Labour’s new 50% taxes.

The burgeoning exodus threatens to deepen a £178 billion black hole in the public finances and leave middle-class voters with higher taxes for years to come, figures obtained from Companies House reveal.

The number of directors of British businesses registered as living in the low-tax centres of Jersey, Guernsey or the Isle of Man has risen by almost 500 to 6,729 in the past 12 months.

The British Virgin Islands is also a popular destination, with 615 directors of UK companies now based in the Caribbean tax haven — an 18% rise on a year ago.

Those known to be fleeing the UK include hedge fund managers, property tycoons, bankers and people who made their money setting up companies organising private healthcare, call centres and luxury holidays.

May be not all governments ignore the incentive effects of taxes, some try to take advantage of them. The article notes that a new marketing brochure published by the island of Jersey’s authorities promises “in Jersey, keep more of what you earn”.

Boettke on Samuelson

Over at the Austrian Economists blog Peter Boettke has a posting on Paul Samuelson. With regard to Samuelson two most famous books, Economics and Foundations of Economic Analysis, Boettke writes,

His Economics became the leading textbook for college freshman, and his Foundations became the leading text for first-year graduate students in economics.

When you scratch the surface of Economics you find Keynesianism at each turn of the page, when you scratch the surface of Foundations you find economics as social physics at each turn of the page. That Keynesian policies are best served by social physics was Samuelson's true legacy for the economic imagination of multiple generations of economics, policy commentators, and policy makers. The discipline of economics was transformed from a tool for understanding and social criticism and an instrument for intellectual enlightenment, to a tool for social engineering and an instrument for progressive politics.

More importantly Boettke argues that Samuelson helped push economics down the wrong road,

John Hicks once wrote that the story of economics in the 1930s was the battle between Hayek and Keynes. I think Hicks is right, and that this battle continues to this day as witnessed in our current policy debates. But I think there is a deeper debate that goes at the very project of economics as a scientific discipline. And that battle is the one between Samuelson and Mises, and the fateful choice was the late 1940s. Rather than following Mises's Human Action, the economics profession went the path of Samuelson's Foundations. Formalism was intereprted as synonymous with logical rigor, and in the subsequent decade positivistic testing was interpreting as synonymous with empirical analysis. By the 1960s, formalism and positivism transformed the science of economics so that the Misesian understanding of "theory" and "history" was actually completely dismissed as a relic of a pre-scientific age.

Since then a large part of the great efforts by economists have been directed at recapturing insights that Mises-Hayek possessed already by mid-century --- whether we are talking about cognitive limits of man, the role of property rights (and legal and political institutions in general and behavior related to them), and the microfoundations of all macroeconomic phenomena. New institutional Economics, New Classical Economics, New Economic History, Experimental and Behavioral Economics, etc. all deviate in significant ways from the scientific and policy project that Samuelson initiated in the late 1940s and which dominated economic thinking from that time until the 1980s. The Samuelsonian project had to be pecked away at for progress in economic understanding to take place. Yet the 'scientific' allure of the project still remains --- unfortunately even among many of those who pecked away at the Samuelsonian project. The pretense of knowledge (see Hayek's Nobel) and the claim to the mantle of science (see Rothbard's paper of that title) have a much stronger grip on the minds of economists and intellectuals than what might be reasonably expected in the wake of repeated failures.

I'm not sure how much the positivistic testing route was really due to Samuelson, Friedman may have more to answer for there. But Samuelson did have a great effect, or good or bad, on the approach that economists take to doing theory.

EconTalk this week

Arnold Kling of EconLog and the author (with Nick Schulz) of From Poverty to Prosperity: Intangible Assets, Hidden Liabilities and the Lasting Triumph over Scarcity talks about the book with EconTalk host Russ Roberts. Kling discusses how modern economists think about growth in both developed and undeveloped countries and contrasts those ideas with earlier views in economics. The focus of the modern understanding is on ideas and the ability of ideas to improve technology, leading to prosperity. Unlike physical capital, ideas can be enjoyed by many people at once, explaining why past models that ignored ideas and focused on physical capital failed to account for the observed magnitude of economic development. Kling also discusses the success of China and India.

FairTrade, mostly a marketing gimmick?

At Marginal Revolution Tyler Cowen offers up some Facts about FairTrade. Cowen writes,

We might think of sub-Saharan subsistence economies when we think of Fairtrade, but the biggest recipient of Fairtrade subsidy is actually Mexico. Mexico is the biggest producer of Fairtrade coffee with about 23% market share. Indeed, as of 2002, 181 of the 300 Fairtrade coffee producers were located in South America and the Caribbean. As Marc Sidwell points out, while Mexico has 51 Fairtrade producers, Burundi has none, Ethiopia four and Rwanda just 10 – meaning that "Fairtrade pays to support relatively wealthy Mexican coffee farmers at the expense of poorer nations".

The article offers many other points of interest. For instance:

By guaranteeing a minimum price, Fairtrade also encourages market oversupply, which depresses global commodity prices. This locks Fairtrade farmers into greater Fairtrade dependency and further impoverishes farmers outside the Fairtrade umbrella. Economist Tyler Cowen describes this as the "parallel exploitation coffee sector".

Coffee farms must not be more than 12 acres in size and they are not allowed to employ any full-time workers. This means that during harvest season migrant workers must be employed on short-term contracts. These rural poor are therefore expressly excluded from the stability of long-term employment by Fairtrade rules.

The Guardian article Cowen refers to also says,

However, economist Paul Collier argues that Fairtrade effectively ensures that people "get charity as long as they stay producing the crops that have locked them into poverty". Fairtrade reduces the incentive to diversify crop production and encourages the utilisation of resources on marginal land that could be better employed for other produce. The organisation also appears wedded to an image of a notional anti-modernist rural idyll. Farm units must remain small and family run, while modern farming techniques (mechanisation, economies of scale, pesticides, genetic modification etc) are sidelined or even actively discouraged.

One wonders what New Zealand's farming sector would look like if run by FairTrade.

Another point made in the Guardian article is

Another criticism is over institutional inefficiencies. The vast majority of the money from Fairtrade sales remains in the west – with only about 5% of the Fairtrade sale price actually making it back to the farmers. As Philip Oppenheim says, "any intelligent person will ask why I should pay 80p more for my bananas when only 5p will end up with the producer".

Scientific peer review, ca. 1945

I reckon things haven't changed all that much in 60 years.

Unintended consequences of environmentalism: LED traffic light edition

Steven Horwitz at the Austrian Economists blog explains that

Apparently a number of communities in the Green Bay, WI area recently installed some energy-conserving LED traffic lights as an environmentalist gesture. The unintended consequence? The lights don't give off enough heat to melt ice and snow, which means during snowstorms the lights are obscured by the snow, which has led to a number of automobile accidents. The further result is that city crews have had to manually scrape the lights.

Horwitz goes on to note

So in attempting to save a fractional amount of energy, we have not only risked human life and limb (and perhaps damaged some), we have caused a number of unnecessary accidents, each of which will require various forms of energy-usage to fix (everything from tow-trucks to body shops use energy you know), and we have diverted human labor from more highly valued uses (such as clearing other roads to prevent further accidents) to scraping traffic lights that should not have needed scraping in the first place.

The unrelenting pressure of protectionism

At VoxEU.org Simon J Evenett has a column on The Unrelenting Pressure of Protectionism: The Global Trade Alert's Third Report. The full report is available here.

The third report of the Global Trade Alert is published today. It contains:

1. The latest assessment of protectionist dynamics at work in the world economy, with a focus on the second half of 2009 to see whether the welcome news of economic recoveries in many countries has feed through into less protectionist pressure.
2. A focus on the Asia-Pacific region: a separate assessment of who is imposing what forms of protectionism in that region and which nations are getting hurt by crisis-era protectionism.
3. An analysis showing the differential impact of crisis-era beggar-thy-neighbour policies on the exports of the leading sectors of the Japanese economy.
4. A comparison between the products and trading partners targeted by antidumping investigations before and during the crisis.
5. Accounts of the impact of the crisis on the trade policy priorities of China, India, and Russia.

Evenett notes that,

Many economies may have turned the corner in the second half of the year, but protectionist pressures have not relented. If anything, recent evidence suggests that the protectionist dynamics were worst in the first three quarters of 2009 than the Global Trade Alert reported in September 2009. For sure, protectionism hasn't yet reached the scale of the 1930s--but water doesn't have to boil to scald.

and

Concerning governments' resort to protectionism, the main findings are:

1. Since the first G20 crisis-related summit in November 2008, the governments of world have together implemented 297 beggar-thy-neighbour policy measures; that is, more than one for every working day of the year. Add another 56 implemented measures that are likely to have harmed some foreign commercial interests, the total reaches 353.
2. Since the GTA's last report was published in September 2009, the number of beggar-thy-neighbour measures discovered (105) was more than eight times the number of benign or liberalising measures (12). Looking back on all of the measures implemented since November 2008, the ratio of blatantly discriminatory measures to liberalising measures stands at nearly six to one.
3. When examining quarter-by-quarter changes in protectionism, experience has taught us that many beggar-thy-neighbour acts only come to light with delay. This fact alone has had an important impact on the number of discriminatory measures reported in the GTA database in the last quarter of 2008 and first two quarters of 2009. In the GTA's second report it was estimated that in the first half of this year approximately 70 measures that likely harmed foreign commercial interests were imposed by governments. This estimate is now revised upwards by 20-25 percent; conservatively estimated, governments imposed 85 protectionist measures per quarter during the first half of 2009.
4. In the light of this finding, the reported number (78) of discriminatory measures implemented in the third quarter of 2009 is not far short of this quarterly average, especially when one bears in mind that this figure will almost certainly be revised upwards as more information about protectionist acts comes to light.
5. 5. Particular caution is needed in interpreting the reported figure of 38 harmful measures imposed in the fourth quarter of 2009. First of all, this figure only refers to measures announced or implemented in October and November 2009, two out of the three months of the quarter. Moreover, prior experience suggests that information about many recent protectionist measures taken by governments is not yet in the public domain. For these reasons, the very recent fall off in the number of discriminatory measures is more apparent than real.

Other key findings about contemporary protectionist dynamics found in this Report are:

1. During the past three months the number of state measures announced which--if implemented would likely harm foreign commercial interests--has expanded from 134 to 188. The protectionism in the pipeline keeps growing--there is no respite here. This protectionist overhang could limit the contribution of exports to economic recovery.
2. Since the last G20 Report was published in September 2009, every one of the top 10 most targeted countries has been hit a minimum of 20 more beggar-thy-neighbour state measures. China has been hit by 47 more measures (the most), followed by the USA (32 more measures) and Germany (21 extra hits.) Many nations retain a strong interest in monitoring and discouraging foreign protectionism, even as economic recovery takes told.
3. On the GTA's four indicators of harm done by a nation's commercial policy, the Russian Federation is always in the top 5 worst offending nations. Meanwhile, China and Indonesia are always in the top 10 worst offenders. If the measures taken by each EU member state were aggregated, then the European Union would always appear in the list of top 10 worst offenders.
4. Since the last GTA report was published, bailouts and trade defence measures account for the overwhelming majority of new discriminatory state measures. Recently, the action is in these two policy instruments, with tariff increases running a distant third.
5. Tariff increases account for only one in seven of the total number of discriminatory state measures imposed in the current global economic downturn. This calls into question how representative of contemporary protectionism, the much-studied, easy-to-measure, and typically-transparent tariff increase is.
6. Looking ahead, the basic metals and basic chemical sectors could be affected by over 30 pending measures. Should these announced--but not yet implemented measures--actually come into force over the next year or so, both sectors will eclipse the financial sector as the principal sector most affected by crisis-era protectionism.

All of which is bad news.

Paul Samuelson has died

This from the New York Times.

Paul A. Samuelson, the first American Nobel laureate in economics and the foremost academic economist of the 20th century, died Sunday at his home in Belmont, Mass. He was 94.

"the foremost academic economist of the 20th century" may be going a bit far, given the likes of Keynes or Friedman, depending on our point of view.

Samuelson was properly best known to most people for his textbook,

Mr. Samuelson wrote one of the most widely used college textbooks in the history of American education. The book, “Economics,” first published in 1948, was the nation’s best-selling textbook for nearly 30 years. Translated into 20 languages, it was selling 50,000 copies a year a half century after it first appeared.

In the 13th edition of Economics Samuealson offered up this assertion:

"[T]he Soviet economy is proof that, contrary to what many skeptics had earlier believed, a socialist command economy can function and thrive."

13 does seem to have been unlucky.

Doing economics at Goldman Sachs

In this audio from VoxEU.org, Jim O’Neill, head of global economic research at Goldman Sachs, talks to Romesh Vaitilingam about the crisis and its impact on the emerging giants of the world economy, the BRICs (Brazil, Russia, India and China). They also discuss the value of economic research in both the commercial and academic spheres, and how the economics profession has come out of the crisis.

How the resource curse works its anti-magic

Roughly the resource curse says that countries and regions with an abundance of natural resources, specifically point-source non-renewable resources like minerals and fuels, tend to have less economic growth and worse development outcomes than countries with fewer natural resources. A question often asked is, Why?

Now a new paper looks at how the resource curse can actually work. The paper is Do Oil Windfalls Improve Living Standards? Evidence from Brazil by Francesco Caselli and Guy Michaels, NBER Working Paper No. 15550, issued in December 2009. The abstract reads,

We use variation in oil output among Brazilian municipalities to investigate the effects of resource windfalls. We find muted effects of oil through market channels: offshore oil has no effect on municipal non-oil GDP or its composition, while onshore oil has only modest effects on non-oil GDP composition. However, oil abundance causes municipal revenues and reported spending on a range of budgetary items to increase, mainly as a result of royalties paid by Petrobras. Nevertheless, survey-based measures of social transfers, public good provision, infrastructure, and household income increase less (if at all) than one might expect given the increase in reported spending. To explain why oil windfalls contribute little to local living standards, we use data from the Brazilian media and federal police to document that very large oil output increases alleged instances of illegal activities associated with mayors.

Michael Giberson at the Knowledge Problem blog writes about the paper,

Most of the body of the paper is taken up with a discussion of data sources and the analysis by which they conclude that royalties paid by PetroBras to municipalities do increase municipal budgets, but seem to generate very little in the way of a broader increase in income or welfare.

From this comes the obvious question, What is happening to the oil revenues?

To partly address this question we put together a few pieces of tentative evidence. First, oil revenues increase the size of municipal workers’ houses (but not the size of other residents’ houses). Second, Brazil’s news agency is more likely to carry news items mentioning corruption and the mayor in municipalities with very high levels of oil output (on an absolute, though not per capita, basis). Third, federal police operations are more likely to occur in municipalities with very high levels of oil output (again in absolute terms). And finally, we document anecdotal evidence of scandals allegedly involving mayors in several of the largest oil producing municipalities, some involving large sums of money. To partly explain why senior municipal workers may have thought that they could “get away” with large-scale alleged theft in a country where local elections are held regularly, we note that a survey in the largest oil producing municipality found considerable ignorance among residents regarding the scale of the municipal oil windfall.

Do we really need a central bank?

This question is asked by Steve Horwitz. On December 2, 2009, Horwitz gave the following speech at The Future of Freedom Foundation’s “Economic Liberty Lecture Series.”

Economic Liberty Lecture Series: Steve Horwitz from The Future of Freedom Foundation on Vimeo.

Prices responding to supply and demand

Strange but true. Thanks to Homepaddock we learn that

News release – South Island wool price movements reflect levels of supply

NZ Wool Services International Ltd reports prices at today’s South Island wool auction saw wool supply factors driving price movements, with prices of different types rising or falling depending on the quantity of wool available.

Who would have thought, prices depend on the supply available. Is this really news?

Nobel prize lecture by Elinor Ostrom

This 28 minute video is of the Nobel prize lecture on "Beyond Markets and States: Polycentric Governance of Complex Economic Systems" given by Elinor Ostrom who is the co-winner of the 2009 Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel. Ostrom delivered her Prize Lecture on 8 December 2009 at Aula Magna, Stockholm University. This video was downloaded from the Nobelprize.org. The video here is based on the "low quality" (20mb) version. There is also a "high quality" (100mb) version available.

Nobel prize lecture by Oliver Williamson

This 38 minute video is of the Nobel prize lecture on "Transaction Cost Economics: The Natural Progression" given by Oliver Williamson who is the co-winner of the 2009 Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel. Williamson delivered his Prize Lecture on 8 December 2009 at Aula Magna, Stockholm University. This video was downloaded from the Nobelprize.org. The video here is based on the "low quality" (27mb) version. There is also a "high quality" (137mb) version available.

The lecture slides from Williamson's talk are available (pdf 126 kb) from Nobelprize.org.

Chinese vs. Russian reforms

An article in Policy Review by Paul R. Gregory and Kate Zhou on How China Won and Russia Lost. The article looks at two dissimilar paths towards economic reform. What worked and why?

Take agricultural reform in China and Russia as an example,

The results in each country could not have been more different. Chronically depressed Chinese agriculture began to blossom, not only for grain but for all crops. As farmers brought their crops to the city by bicycle or bus, long food lines began to dwindle and then disappear. The state grocery monopoly ended in less than one year. Soviet Russian agriculture continued to stagnate despite massive state subsidies. Citizens of a superpower again had to bear the indignity of sugar rations.

These two examples point to the proper narrative of reform in Gorbachev’s Russia and Deng Xiaoping’s China. Our narrative contradicts much received doctrine. The standard account is that China succeeded because a wise party leadership deliberately chose gradualism, retained the monopoly of the Communist Party after rebuffing democracy at Tiananmen Square, and carefully guided the process over the years. The narrative says that Russia failed because the tempestuous Gorbachev ignored the Chinese reform model, moved too quickly, and allowed the party monopoly to fall apart. This standard account is incorrect.